Friday August 12 Daily Market Primer

I want to party like its 1999 with the three major US stock indices hitting new highs yesterday, and the European Stoxx 600 recovered all of its post-Brexit losses.  Markets in Asia were up 1% or more Friday, and European markets are basically flat this morning.  Oil had a big week, which is a continuation of the volatility we have seen all year, with prices up 4% to $44 on new report from the IEA (International Energy Agency) that the global oil glut is disappearing, and Saudi Arabia talking about talking about supply.  US initial jobless claims yesterday came in at 266,000, in line with estimates, and for the 75^th week in a row below the key 300,000 mark.   US markets are opening slightly down this morning.

DJIA	18613.52	117.86	0.64%
Nasdaq	5228.4	23.81	0.46%
S&P 500	2185.79	10.3	0.47%
Russell 2000	1229.12	5.84	0.48%
Global Dow	2450.91	1.84	0.08%
CBOE Volatility	11.83	0.15	1.28%
Australia: S&P/ASX 200	5530.9	22.9	0.42%
China: Shanghai Composite	3050.67	48.03	1.60%
Hong Kong: Hang Seng	22766.91	186.36	0.83%
India: S&P BSE Sensex	28152.4	292.8	1.05%
Japan: Nikkei 225	16919.92	184.8	1.10%
Singapore: Straits Times	2867.4	-2.42	-0.08%
France: CAC 40	4498.16	-5.79	-0.13%
Germany: DAX	10707.81	-35.03	-0.33%
Italy: FTSE MIB	16970.28	0.59	0.00%
Spain: IBEX 35	8708.9	-10.6	-0.12%
U.S. 3 Month	0.29	0/32
U.S. 2 Year	0.69	3/32
U.S. 5 Year	1.075	11/32
U.S. 10 Year	1.494	19/32
U.S. 30 Year	2.224	1  7/16
Germany 2 Year	-0.625	0/32
Germany 10 Year	-0.102	2/32
U.K. 2 Year	0.136	1/32
U.K. 10 Year	0.521	5/32
Crude Oil	43.73	0.24	0.55%
Brent Crude	46.13	0.1	0.22%
S&P GSCI	347.27	0.51	0.15%
E-mini S&P 500	2179.5	-2.25	-0.10%

US retail sales were unexpectedly flat month over month in July, but the June number was revised up slightly, and the year over year growth was 2.3%.  The Atlanta Fed is forecasting a 3.7% GDP growth in the third quarter.   Russia reported a GDP decline of .6%, slightly better than expected.  German bank Raiffeisenbank Gmund is offering negative interest rates to depositors, as lower for longer works its way through the financial system. 

Have a productive Friday and a great weekend, here’s the news:

Party like its 1999

Yesterday's U.S. market session saw the three benchmark indexes (the Dow, the S&P 500 and the NASDAQ) close at record highs for the first time since 1999. The continuing rally in U.S. stocks is forcing analysts to revise their S&P 500 targets higher, with Wells Fargo & Co. raising its 12 month expected level to 2200. In Europe, it is more a case of 'party like it's late June' as the Stoxx 600 Index erased all of its post-Brexit losses by yesterday's close. It is a more muted story in markets this morning with the Stoxx 600 Index and S&P 500 futures basically flat at 6:10 a.m. ET.

Euro area growth

Germany continues to be Europe's powerhouse economy, with growth in the second quarter slowing less than expected to a seasonally adjusted 0.4 percent, twice the rate expected by economists surveyed by Bloomberg. The shoe is on the other foot for Italy, where growth stagnated when economists were expecting 0.2 percent expansion. The disappointing Italian data put more pressure on Prime Minister Matteo Renzi who has staked his political future on a referendum aimed at providing more stable government, which is expected in November. The euro area as a whole grew 0.3 percent in the second quarter, in line with estimates.

Oil rebound

Oil is heading for its biggest weekly advance since April after Saudi Arabia signaled its willingness to discuss measures to stabilize the market at next month's informal OPEC talks in Algiers. A barrel of West Texas Intermediate for September delivery was trading at $43.52 at 6:00 a.m. ET, over 4 percent higher for the week. Meanwhile, the lack of investment in downstream refining, especially in South America, is proving a boon for U.S. refiners who have almost doubled their exports to the region in the past six years.

China concerns

China's broadest measure of new credit expanded 487.9 billion yuan ($73.4 billion) in July, the slowest pace in two years, and well below the median estimate of 1 trillion yuan in a Bloomberg survey of economists. Data released overnight also showed slowing industrial production, retail sales and fixed-asset investment, raising concerns over the stability of the country's growth outlook. Those concerns were not reflected in the Shanghai Composite Index, which rallied the most in a month, fueled by optimism over merger activity.

Coming up...

It may be a Friday in the middle of August, but that does not mean there isn't some interesting U.S. economic data to look at. The Retail Sales Report for July is due to be released at 8:30 a.m. ET, with expectations for a moderation of the pace of growth. PPI data is also due at that time. Then at 10 a.m. ET the latest University of Michigan sentiment numbers are due, which are expected to rise to 91.5.

The stock market has done something it hadn't done since December 31, 1999. On Thursday, all three of the major averages closed at record highs on the same day for the first time since the last millennium, according to Bespoke Investment Group. While history doesn't always repeat itself, it's worth mentioning that all three topped out within a couple of months and a massive economic recession developed soon thereafter.

Euro-area GDP was in line. The euro area grew 0.3% in the second quarter, according to Eurostat's flash estimate, matching predictions. The region saw a slowdown from the first quarter, which experienced growth of 0.6%. Germany's economy posted growth of 0.4%, while Italy's came in flat. The euro is up 0.2% at 1.1155.

Chinese data was awful. July retail sales rose 10.2%, below the 10.5% that was expected and well short of June's reading of 10.6%. Industrial production came in at up 6.0%, versus expectations of a 6.1% print. Completing the trio of disappointing figures was fixed-asset investment, which grew 8.1% compared with the 8.8% that economists had forecast.

A bank in Germany is charging negatives rates for retail depositors. Raiffeisenbank Gmund is charging depositors a custody charge of 0.4% on deposit accounts over 100,000 euros, or $111,500, according to Reuters. "We have written to all large depositors and recommended that they think things over," Josef Paul, a board member, said. "If you don't create an incentive to change things, then things don't change."

The robots are coming for your jobs. A Morgan Stanley note says 47% of US jobs could be automated over the next two decades. According to the data, loan officers (98%) have the highest probability of seeing their job automated, while elementary school teachers and physicians and doctors (0.4%) have the lowest probability.

Nordstrom posts a big earnings beat. The retailer earned $0.67 a share, well ahead of the $0.57 that Wall Street was expecting. Sales slid 1.2%, but that was better than the 2.6% drop that analysts were looking for. "Over the past several quarters, our team has been actively addressing our inventory, expense, and capital and in the second quarter made substantial progress by bringing down inventory in line with sales," Blake Nordstrom, the company president, said on the earnings call.

San Jose is the first US city where the median home costs over $1 million. Data released by the National Association of Realtors on Wednesday showed that the median home in San Jose was worth $1.085 million. Nationwide, the average price of a single-family home is up 4.9% versus last year to $240,700.

A Record Trifecta
For the first time since the dot-com boom was in full swing, the Dow industrials, S&P 500 and Nasdaq Composite all reached new records on the same day. Thursday’s feat, which had been rendered elusive for almost 16 years by the slow recovery of the Nasdaq Composite, is a testament to investors’ willingness to bet on stocks despite signs that they have risen too far and a marked reversal from the start of the year when markets tumbled amid worries about a global recession. The last time all three indexes jointly closed at records was Dec. 31, 1999. Stocks are benefiting from a mix of easy-money policies from central banks that are pushing investors into riskier assets and low expectations. For some traders, the trends suggest the records could be just the start.

She’s Got Mail
The email controversy that Hillary Clinton hoped had died out when prosecutors closed their investigation last month now looks likely to shadow her campaign through Election Day. We report that rolling releases of emails from Mrs. Clinton’s time as secretary of state, combined with her own failure to provide succinct, consistent answers on her email practices, have kept the issue simmering. The drumbeat is undercutting Mrs. Clinton’s candidacy and hindering her efforts to seize fuller control of the presidential race by painting Donald Trump as an unacceptable alternative. Meanwhile, our analysis shows that the vast majority of areas of the U.S. most heavily affected by competition from Chinese imports voted for Mr. Trump in the Republican primary races, as disillusionment with globalization has fed one of the most unconventional political seasons in modern history.

Mettle for Medal
The Olympics have avoided any overall calamity, but glitches that include security lapses and food shortages are straining Brazil’s ability to deliver on its promise to make the first-ever Games in a developing-country democracy a success. Organizers and the authorities have been working to fix the problems. To accelerate security lines, they have sometimes substituted random, manual bag checks for airport-style X-ray scans. To guard against bomb threats, they have blown up suspicious bags, the latest of which occurred on Thursday after a basketball venue was evacuated. Also from Rio, we look at how U.S. gymnast Simone Biles took gold and whether track and field can overcome a series of bruising doping scandals. And sports columnist Jason Gay takes us behind the scenes as U.S. bike idol Evelyn Stevens prepares to say goodbye to professional racing.

Trans-Pacific trade deal gains support in US

Republican presidential nominee Donald Trump and Democratic nominee Hillary Clinton are criticizing the Trans-Pacific Partnership on the campaign trail, but more Americans are saying they like it. A poll by Morning Consult has found that 35% of respondents support the trade deal, up from 26% in March.  Business Insider

Contraction of Russia's economy lessens

Russia's GDP posted 0.6% year-over-year decline in the second quarter as the pace of economic contraction eased, the Federal Statistics Service said. The median of forecasts from economists surveyed by Bloomberg anticipated a 0.8% decrease.

Bloomberg (11 Aug.), 

Stock markets around the world are mixed. China's Shanghai Composite (+1.6%) led in Asia, and Germany's DAX (-0.2%) lags in Europe. S&P 500 futures are up 1.75 points at 2,183.50.

Earnings reports trickle out. J.C. Penney reports ahead of the opening bell.

US economic data flows. Retail sales will be released at 8:30 a.m. ET, and University of Michigan consumer sentiment will cross the wires at 10 a.m. Data concludes for the week with the Baker Hughes rig count at 1 p.m. ET. The US 10-year yield is down 2 basis points at 1.54%.

Negative rates arrive for German retail depositors.

Russian hackers nabbed secrets from NATO and Soros.

This eccentric CEO ignores investors, but gets them rich.

European bank stress tests get more stressful when you make them American.

One sign Treasury liquidity is better than it's been in years.

A really vicious circle is threatening pension pots.

Should the cost of guaranteeing retail deposits be make clearer?

WSJ Survey: Economists Point to December Rate Increase for Fed

Dispute Between Russia and Ukraine Over Crimea Accusations Escalates

Turkey’s Hunt for Alleged Coup Participants Extends Overseas

Home Equity Loans Come Back to Haunt Borrowers, Banks

The U.K. Is the New Engine of Bond-Market Distortion

The Brexit vote and the nomination of Donald Trump have caused a lot of people to focus on groups who have lost out in the modern economy as a result of globalization and technological change. In the U.S. lately there's been a surge of interest and writing about the white working class and why that group finds Trump so appealing. Much of the writing is think pieces done by elite journalists at coastal publications. But one book that's getting a lot of attention is Hillbilly Elegy by JD Vance, an investor and Yale-educated lawyer, who grew up in an old Ohio steel town in a family of self-characterized hillbillies from Kentucky. The book is more sociological than economic, but while it paints a picture of a culture in decline, it complicates the simple narrative that the problems are all about globalization, or that things could be rectified if only governments had focused more on redistributing gains from the winners of trade to the losers. Anyway, I'll be interviewing Vance on What'd You Miss? on BloombergTV this evening, so you can see what his argument is all about.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters